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Sunday, December 28, 2008

What Happened to the 1,911,000 Lost Jobs?

Mark Thoma directs us to a stunning claim made by Casey Mulligan in the New York Times:

[T]he decreased employment is explained more by reductions in the supply of labor (the willingness of people to work) and less by the demand for labor (the number of workers that employers need to hire).

If true, this claim means most of the 1,911,000 jobs lost since December 2007 are the result of voluntary choices made by employees. This interpretation probably strikes most observers as ridiculous, but before we dismiss it out of hand let's take a look at the employment data. The place for data on this question is the BLS's Job Opportunity and Labor Turnover Survey (JOLTS). This survey provides data on job openings, hires, and separations, and goes back to December 2000.

Let's first take a look at the JOLTS data on "quits" and "layoffs & discharges". The quits category is defined as "employees who left voluntarily" and does not include retirees or transfers to other locations. The layoffs and discharges category is self explanatory, but here is the JOLTS definition if you are interested. I have graphed these two series below through the last data point available, October 2008 (click on figure to enlarge):

Note that the number of voluntary quits has actually declined over the past two years, indicating workers are not leaving their jobs en masse as suggested by Mulligan. So much for the labor supply contraction. Layoffs & discharges, on the other hand, show a upward trend over the past two years. The increase in layoffs & discharges, however, is quite modest and that may be surprising to some observers given the large number of lost jobs this year. The modest increase in layoffs & discharges, though, is more than made up for with the lack of new job openings and hires (definitions here) as can be seen in the figure below (click on figure to enlarge):

This last graph highlights an interesting point raised by Robert Hall: employment typically falls during a recession not because of a huge increase in job losses, but because new jobs are harder to find. Either way, weakened labor demand is the source of the employment reduction. The JOLTS data show this to be the case for the current U.S. recession.

9 comments:

Complicating the picture is the housing market. If jobs are being created in Texas but my house is unsaleable in Michigan, what should I do ? I seem to recall Andrew Oswald did some econometric work for OECD countries suggesting that higher rates of home ownership raise the natural rate of unemployment.

Just to muddy the waters a little more: if one takes an Eco 101 neoclassical approach as Mulligan does, the tremendous wealth destruction caused by the decline in stocks and housing should cause the labor supply curve to shift to the right. But in any case, the research you cite by Hall and also Shimer and others indicates that the study of employment, productivity and recessions has moved far beyond the simplistic model taught to undergrads and evidently seen as a good model of the real world by Mulligan. On reflection, he is as guilty as the Keynesians of slavish devotion to antiquated over-aggregating macro modeling.

Although the drop in the number of quits is interesting, it's not a knock-down argument against Mulligan (not that I think he's right). An important question is why people are quitting. The real number Mulligan or you needs is the number of people who are simply quitting without having another job lined up. He could argue that those numbers are going up while the overall quitting numbers are going down.

I assume most people quit with another job lined up. If that's true, the drop in quitting fits with a drop in the supply of jobs. If fewer employers are hiring than fewer people would quit one job for another job.

Yes, it is important to understand that "official" U.S. unemployment figures only take into consideration those currently receiving unemployment benefits. And that those folks whose benefits have stopped before they've found new work basically then "dispapear" from the publically reported numbers.

This time around, the real thing to realize is that folks who recieved their first 26 weeks of unemployment benefits, then their 1st emergency unemployment benefits extension of additional 13 weeks, then their 2nd emergency unemployment benefits of another 7 weeks may soon go into the statistical oblivion if they don't get a new job before the end of benefits.

Meaning that the folks looking the longest and hardest may really fall "off the radar", and therefore the U.S. unemployment numbers are actually more onerous than are being reported officially.

"Note that the number of voluntary quits has actually declined over the past two years, indicating workers are not leaving their jobs en masse as suggested by Mulligan."

Another Chicagoist bites the dust (in terms of honesty; I'm sure that he's a whiz-bang on theory).

I'd add that in a recession, an employer might well, um, 'encourage' quitting, by making life rougher for many employees. And this would be on top of life being made rougher by doing business in a bad economy.

Ed: "Although the drop in the number of quits is interesting, it's not a knock-down argument against Mulligan (not that I think he's right). An important question is why people are quitting. The real number Mulligan or you needs is the number of people who are simply quitting without having another job lined up. He could argue that those numbers are going up while the overall quitting numbers are going down."

I've got to find a term for this sort of argument. It's true that a good deep dive into the data could, in the end, support Mulligan's analysis, and that the prima facie (sp?) view of the numbers is misleading.

However, Mr. Mulligan has not, AFAIK provided such an analysis. If and when he does, there'll be reason to listen to him. Right now, it's sufficient to point at the graphs and to laugh loudly at him.